The introduction of Basel II (and subsequently Basel III) ended the era of the price table in the banks and savings banks, as I knew it from my training as apprentice, in the lending business. The significantly increased importance of the assessment of credit risks led to the replacement of the price list mostly by a formula or calculation logic.
The price previously set with the broader thumb, which included the processing, the credit risk but also the expected profit – and which could then also be adjusted to market or competition – gave way to a „precisely“ determined price.
Unlike in the past, the calculation formula takes on a larger share of the pricing than the RSM. The increased complexity also means that in many cases individual price components can no longer be checked with a gut feeling from the start. The RSM has thus often changed from a price builder to a price recipient.
In addition, the risk estimation function has improved significantly as a result of the rating procedures introduced, but essentially remains an estimation function. The actual risk profile in a loan can therefore be better, worse or (sometimes) exactly as “assumed” in advance via the rating process.
In the case of multi-year loans, it is therefore quite likely that the customer’s creditworthiness will deviate from the calculated creditworthiness, at least for part of the term of the loan. It will then be the case that there will be periods in the loan term in which the loan is economically different for the bank or savings bank than planned.
As long as it’s moving into the right direction from the lender’s perspective, it’s not a problem. A deterioration in creditworthiness by one or two notches, on the other hand, can easily consume profitability completely or even make the business for the RSM (in the relevant periods) deficit. (Without covenants, there is usually no possibility of subsequently influencing the pricing during the term of the loan – and the mixed calculation is just a pure calculation and economically no cover or insurance for this calculation!)
It is therefore necessary to provide the mathematics-heavy pricing in the external relationship, wherever possible, with buffers in order to get a higher level of security to actually realize the desired profitability for a business. Because: the risk profile is not linear, i.e. a deterioration in creditworthiness has a dramatically higher impact on the profitability of a business than an improvement in creditworthiness of the same magnitude. So when it comes to pricing, I tend to orientate myself towards the worst case; the best case remains a pure takeaway effect.
In order to achieve this effect in pricing, it is necessary for the customer advisor to develop more strongly from the price recipient to the price picture. For this it is helpful if the complexity in the pricing process is reduced – and price competence in sales is rewarded. (Price competence = build and enforce prices).
In practice, the introduction of a minimum margin table has proven its worth. In this way, the old price table is experiencing a renaissance and a price can (again) be determined easily and without a formula. The margins contained in the tableau are (slightly) above the level determined using the formula. In this way, two effects can be realized: on the one hand, a possible buffer for breathing risk costs is created and, on the other hand, the RSM gains leeway for price competence. (Typically, prices below the price calculated using the formula require direct approval, e.g. by a RSM.) If the sales control is based not only on revenues (= CM I), but on revenues according to risk (= CM II) and direct costs (= CM III), I get a magnifying glass on the pricing in the lending business and on income from cross-selling. This also creates the necessary motivation for sales to work with the regained freedom in pricing.
Vertriebsmanagement 